Tesla Stock Riding High but Risks Remain

By Heide B. Malhotra, Epoch Times
June 27, 2013 12:57 pm Last Updated: June 27, 2013 12:57 pm

Investors are always on the lookout for a stock that will make them a fortune, and even worry day and night that they might miss the chance of a lifetime. Maybe buying Tesla Motors Inc. stock (NASDAQ: TSLA) is just what’s needed to make investor adrenaline run faster. Some investors, however, think that chance may have already passed on Tesla. 

“For those of us who were mulling investing in Tesla, well, I believe we blinked and we missed it,” said a recent Motley Fool article. 

You Snooze You Lose

Many investors thought about buying, but ultimately waited too long.

“I have repeatedly considered adding Tesla shares to the Prosocial Portfolio I’ve been managing for Fool.com for more than two years now. I have also repeatedly chickened out,” said Alice Lomax, a senior writer and analyst for Motley Fool.

Back in December 2010, Lomax didn’t buy the stock because Tesla wasn’t profitable. Tesla had reported net losses in all its fiscal year-end statements. In 2010, 2011, and 2012, its consolidated net losses amounting to $154 million, $254 million, and $396 million, respectively. The company’s cumulative net losses amounted to $669 million at the end of 2011 and $1 billion at the end of 2012. 

At year-end 2011, Lomax was considering buying Tesla stock for Motley’s Rising Star portfolio, but backed out again. This time her hesitation wasn’t due to Tesla’s yearly losses but because Adam Jones, analyst at Morgan Stanley, turned negative on Tesla shares at the time and lowered his price target from $70 to $44. His reason: Overall electric vehicle market penetration would reach only 4.5 percent by 2025, instead of the 8.6 percent market share he had previously modeled. 

Then on June 10 of this year, Lomax, although tempted again given the company’s first profitable quarter, still wasn’t ready to buy Tesla’s stock. This time she put the brakes on because she had reservations about the lofty price tags on Tesla cars, as well as very public concerns about just how far the cars will go on a single charge.

“The stock’s swift ascent means investors could slam on the breaks very quickly, too. For those of us who didn’t buy in early, that moment’s exactly what we’re waiting for,” she adds. 

Keeping Investor’s on Their Toes

Morgan Stanley has stopped lowering Tesla’s target price, with its latest target being $109 in the near term and a possible $200 in the long term. They see the offering of additional common stock and convertible senior notes, worth a total of $830 million as a positive. A big slice of the proceeds will be used to pay off a loan from the U.S. Department of Energy. 

On the other hand, Bank of America has an underperform rating on the stock and a target price of $39. This is despite the closing price for the stock having already reached $105 on June 26.

Tesla’s stock price has been rising rapidly in recent months, hitting an all-time high of $110.33 per share on May 28. 

In spite of the recent rise, investors should exert caution. “Tesla isn’t a safe stock,” states a June 20 Motley Fool article. 

Tesla faces strong competition from Ford Motor Co., Nissan Motor Co. Ltd., and General Motors. These three companies are also selling electric vehicles (EVs). Although none of these companies comes close to Tesla in terms of quality, they are selling EVs at price points much more affordable to the average consumer.

For Tesla to achieve long-term profitability and a sustainable market share it has to crank up its unit production and turn out a product that appeals to the masses by lowering its prices and not only catering to the luxury crowd.